COAC BRIEFING NOTE ON ACCIDENT INSURANCE BILL

The Government has produced no research evidence at all to support the compulsory private insurance market model being promoted in the Bill. It has been unable to point to a single jurisdiction anywhere in the world where such a model is operating successfully.

In fact all of the available evidence is to the contrary:

• The 1998 Coopers & Lybrand Report commissioned by Government warned against it.
• The 1997 Report to the British Columbia Government Royal Commission on Workers Compensation by Rutgers University's Burton and Thomason who concluded that US private insurance workers compensation schemes are 47-64% more expensive to employers than the British Columbia single fund scheme.
• The Victorian and South Australian Governments have both within the last two months made decisions against adopting this model.
• The Australian National Industry Commission Report "Workers Compensation in Australia" warned against competition which eroded benefits or shifted costs onto other parties as "invidious".
• The Victorian 'Cooney Report' recorded the appalling record of private insurance in Australian workers compensation.
• Historically the international trend has been away from private systems to public single fund systems.
• Some of the best practice workers compensation schemes in the world are public single fund schemes (e g Washington State in the USA).

ACC Minister McCully says it is all about "choice". In reality the only choice will be for employers --- to choose between insurers who will compete for business, and who will inevitably do so by constraining the cost of compensation and rehabilitation assistance to injured workers.

There will be no choice for injured workers. Their legal right to sue will be suspended by law and they will be dependent upon an insurance contract between their employer and an insurer to which they are not even a legal party.

The single fund approach has the great advantage of unfragmented data capture which can be used for injury prevention purposes, and the ability to initiate and invest in injury prevention strategies.

Privatisation will destroy the national database collection and common sense indicates that private insurers will not invest in one employer's injury prevention when the employer can move to a cheaper insurer as soon as the investment has been made.

The experience worldwide shows conclusively that the beat injury prevention potential is with a single fund and ACC has developed some excellent initiatives in recent times.

The Bill will also disband the experience rating and accredited employer programmes which have been important injury prevention incentives to employers.

The Bill will weaken both the financial incentives, and the legal framework, necessary to promote effective and fair rehabilitation of seriously injured workers.

Private insurers have no experience or expertise in this area and their Australian experience indicates that the focus will be on using legal mechanisms to terminate injured workers' earnings compensation rather than invest in proper rehabilitation and re-training.

ACC have developed some excellent Injury Management Programmes in several key industries and the value of this co-operative model will be lost with the passing of the Bill.

It is acknowledged, even by supporters of the Bill, that the claims handling provisions, and the scheme of operation proposed, are unworkable.

Some of the problems are illustrated in the attached "Kelly's Story".

Lawyers, Doctors, insurance actuaries, independent consultants and Unions have all raised concerns about the administrative chaos that the Bill will create in the second half of next year if it is implemented.

Expert submissions to the Select Committee have predicted that private insurance will be more expensive for most employers than the Government owned Accident Compensation Scheme.

The evidence available so far is quite unequivocal:

• The average ACC employers levy has already been increased to $2.35 per $100 of payroll in preparation for the 'full funded' private insurance model. Had ACC been retained as a pay as you go scheme the average levy would be $1.67 probably reducing to $1.30 next year.
• As a consequence of the proposed privatisation employers will have to continue to pay an extra levy to fund the $5 billion unfunded liability, and extra levies passed on by insurers to cover insolvent insurers, non-compliers and prudential regulation and supervision.
• Administration costs of private insurers are 30-40% compared with 8-10% for ACC.
• Coopers and Lybrand have advised the Government that privatisation of workers compensation in Australia has increased costs to employers rather than reduced them. The report says that monopoly ACC schemes are more secure and stable, with superior data and long term planning.
• The Thomason Burton study over 20 years in North America concluded that single fund schemes have been more cost efficient administratively than private insurance.

While employees and employers alike a dissatisfied with ACC in its present form it now seems certain that the Accident Insurance Bill will both increase costs to employers and deliver less to injured employees.

The Government is insisting that the Bill must be rammed through Parliament before Christmas. This is a completely unreasonable timetable as public debate about this ill conceived measure is required.

COAC is support to prevent the Accident Insurance Bill becoming law and to instead refer it to a small committee of experts to consider among other options for reform.

The objective of this would be to ensure that we have a proper and informed debate about the future of accident compensation in New Zealand and that, as far as possible, we build a political consensus around the model which is recommended by the committee of experts.